Strongman Putin alone is no match for growing corruption

President Vladimir Putin’s crackdown on corruption is vital to Russia’s future. It is also certain to fail unless he recognises the shortcomings of his methods.

In 2008, under then-president Dmitry Medvedev, Russia began a genuine and somewhat successful effort to bring its corruption laws into the First World.

At the same time, the state restricted investigative news media, stepped up its intimidation of non-governmental organisations, persecuted whistle-blowers and subverted the judicial system.

No bureaucracy can police itself effectively. That’s why international conventions (and now Russian law) clearly state that graft can be reduced only if whistle-blowers and non-state actors play an active role. Yet Putin, back in power after four years as prime minister, is sending a message that he is Russia’s only anti-corruption champion, and that exposure of dishonest officials is at the sole discretion of the Kremlin.

Corruption costs Russia about $300 billion (R2.7 trillion) a year, a whopping 16 percent of gross domestic product. And that measure does not capture the distorted incentives and lost investment that are side effects.

Russia placed last in Transparency International’s most recent Bribe Payers index, which ranks countries according to their companies’ propensity to offer bribes.

Corruption is an integral part of the state-based economic system Putin has built since he took power in 2000. In the oil and gas sector, for example, the government controls 45 percent of production, compared with 10 percent in 1998 and 1999, research by BNP Paribas shows.

Managers of state-owned oil and gas companies are usually former government officials, and their companies are routinely tapped to fund unrelated projects such as the 2014 Sochi winter Olympics. Natural gas monopoly Gazprom’s budget for such initiatives in 2011 to 2014 was $14.3bn, BNP said.

In 2011, Gazprom lost $40bn to corruption and inefficiency, Anders Aslund of the Peterson Institute for International Economics has estimated.

When British hedge fund manager William Browder tried earlier to expose this kind of misfeasance, he was barred from Russia and had several of his companies confiscated. His lawyer, Sergei Magnitsky, then alleged that several interior ministry officials had, in the process of confiscating Browder’s companies, simply pocketed $230 million the firms had paid in taxes. Magnitsky was arrested and died in custody in 2009.

Since returning to the presidency last year, Putin has seen public anger over corruption take a toll on his approval ratings. He formed an investigative committee on graft within the Kremlin, and pushed new laws to force officials to declare their incomes and ban them from holding foreign bank accounts and shares.

Yet, such welcome strengthening of anti-corruption laws cannot succeed if the state attacks anyone who takes the lead in exposing graft outside Putin’s Kremlin-sanctioned campaign. The current show trial of anti-corruption blogger Alexei Navalny on what look like trumped-up charges of embezzlement is a case in point.

So what to do? One answer lies in building on steps already taken. In 2008, after joining the Council of Europe’s Group of States Against Corruption, Russia adopted a legal definition of corruption and later made it a distinct criminal offence.

Last year, Russia signed on to the Organisation for Economic Co-operation and Development’s anti-bribery convention.

These organisations should continue to press the Russian government to follow through on its anti-corruption commitments. So far, it has implemented 15 of 26 recommendations that the Council of Europe made in 2008. A progress report in March said it remained true that “bribe-taking in courts represents one of the biggest corruption markets in Russia”.

Putin’s campaign against non-governmental organisations has made it more difficult for them to promote necessary reforms.

Transparency International’s Moscow office, for instance, has been inspected three times this year, and it may be forced to register as an “alien” organisation.

Meanwhile, the US, the EU and Russia’s other partners can make sure that companies operating in Russia comply fully with their own anti-corruption laws. They can also shine a light on egregious abuses.

Today, US Secretary of State John Kerry can publicly disapprove of Navalny’s unfair trial, and promote transparency.

Putin, the anti-corruption campaigner-in-chief, would not be pleased, but many Russians will be.

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